So dollar duration is supposed to be: Mkt value * duration * .01 So why does it say twice on page 119 that dollar duration is: Duration * price?
Dollar duration = Duration in decimals * price. But duration in decimals = duration in percentage terms * 0.01. So, this is identical to saying the following. Dollar duration = Duration in percentage * 0.01 * price. Both are identical. For example, if duration is 5%, this means duration is 0.05 (decimal terms). Hope, I have made myself clear.
Ok, that makes sense, until volume 5 page 343 where again it says at the bottom that dollar duration is duration * mkt value. I expected this to be duration in decimal form as you mentioned above, but in exhibit 2 on page 345 they use duration in percentage form. Does anyone know why this is?
Duration*price = the change in price per change in rates Duration*price*0.01 = the change in price per 1% change in rates (price and market value are the same thing) Looks like they are using different definitions of “duration”. Don’t get hung up on this. Just understand the concept.